Guess’s North American Retail Revenue Per Square Feet Will Improve Going Forward

Los Angeles-based specialty apparel retail Guess (NYSE:GES) has been struggling in North America for the past few years, due to its slack response to changing fashion trends, a decline in number of tourists, fewer promotional activities and poor performance of the accessories business. The retailer’s revenue per square feet (an important metric that measures store productivity) declined from $494 in 2009 to $471 in 2012 owing to the aforementioned problems. Despite the company’s aggressive attempts to improve its merchandise design and prices, its revenue per square feet declined to $462 in 2013, due to an overall industry slump.

Although the recent past hasn’t been good for the company, we believe that it can gradually recover by effectively leveraging its revamped design and merchandising management, competitively priced products and omni-channel platform. Last year, Guess hired new talents for the positions of chief designing officer and vice president of retail merchandising, which is likely to bring in some fresh changes to the brand’s design and retail strategies. The company introduced a range of cheaper yet appealing merchandise late in 2012 to entice cost conscious customers, which has done well so far. Guess has been aggressively pushing towards omni-channel retailing in order to leverage customers’ online shopping interest to enhance its store sales. We believe that these efforts will push the retailer’s revenue per square feet upwards going forward.

Towards the end of 2012, Guess revamped its merchandise mix by increasing its denim offerings and iconic styles at the entry level prices of $75-$95. [1] Interestingly, Guess’s $79 denim has become one of its most popular merchandise lately. The company reported that its $79 denim delivered positive results in the first quarter of 2013 and its sales trend improved in the second. [2] During Guess’s third quarter earnings call, COO and executive vice president, Russell Bowers, said that Q3 sales of $79 denim were much better than Q2. This improvement continued in Q4 with double-digit comparable sales growth at full priced stores (which had denim in their shelves) in November. [3]

Comparable sales growth at full priced stores indicates that $79 denim is improving every month and its price points are more appealing than its design. This is evident from the fact that other categories such as dresses have also done very well at opening price tier. Hence, if the company continues to follow this strategy, other categories can also deliver better results in the future.

Last year, Guess hired Sharleen Ernster Lazear (who worked 13 years with Victoria’s Secret) to specifically oversee and enhance its product offerings. [4] It also appointed Hillary Super, who had previously worked with American Eagle Outfitters (NYSE:AEO) and Gap Inc. (NYSE:GPS), as vice president for retail merchandising. Given their valuable experience, we believe they can add some freshness to Guess’s product designs. With compelling prices and attractive designs, Guess should be able to improve its revenue per square feet gradually.

Greater Emphasis On Omni-Channel Retailing

Over the past one-and-a-half years, Guess has worked hard to integrate its e-commerce business with its stores channel, mobile and social media. During the second quarter of 2013, the retailer began the fulfillment of its online orders through store inventory. By the end of the third quarter, more than 100 of its stores were fulfilling e-commerce orders. [3] Additionally, Guess has deployed various multichannel initiatives such as “reserve online, pick in store” service, iPad kiosks in select stores, mobile optimized sites, etc. Alongside, it has upgraded its point-of-sales system, enhanced its product life cycle management system and increased the efficiency of its supply chain.

Earlier this year, Guess launched a state-of-the-art mobile app intended to augment customer service, fashion promotion and provide a seamless multichannel shopping experience. [5] This app offers a new loyalty program where customers serve as brand ambassadors by promoting the products within their peer group through various social media websites. In return, they are awarded additional discounts and rewards that can be redeemed at the stores. The company believes that this app will create high visibility and bring customers in closer contact to the brand through highly interactive and personalized engagement.

Driven by its omni-channel initiatives, Guess’s e-commerce sales increased by a staggering 49% in Q1 2014, which helped it offset the impact of comparable sales decline. [6] We believe that as the company continues to develop this platform, it will be in a better position to drive store and web traffic. This will ultimately help its revenue per square feet. Guess has stated in its earnings call, that it expects significant growth for omni-channel over the next three years. [7]

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